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Bosnia and Herzegovina: Foreign investors came with political goals

Stepan Santrucek

Originally published by Balkan Insight

May 16, 2019

The text is a continuation of the article Failed Privatisation is to Blame for Bosnians’ Exodus.


In 2000, the international community created a list of 140 “strategic large enterprises” – 87 from the Federation entity and 53 from the Republika Srpska – which were supposed to be privatized.


The main focus was given to companies producing and supplying electricity and water, telecommunications and transport companies, mines and so on.


Structural reforms and laws on foreign direct investments were adopted to attract foreign investors. However, this approach did not prevent controversies and the above-mentioned negative aspects – political obstruction, non-transparency and especially ethnicization.


Although there were successful cases of privatization by foreign investments, the foreign investors often used the opportunity of privatization to gain more influence in the country and strengthen their political ties.


The three examples described below reveal the controversies surrounding foreign investors’ role in privatization – be it USAID’s mismanagement, leading to ethnicization and failed privatization, or Russian and Turkish capital, aiming to strengthen these countries’ positions in Bosnia and establish close ties to the Serbian and Bosniak leaderships respectively.


The failed privatization of the giant aluminium producer Alumnij Mostar in 2008 is an illustrative case of controversial USAID assistance. At first, a USAID-assigned international consultant miraculously reduced the company’s market value from 620 million US dollars to 84 million.


Furthermore, members of the winning consortium, Glencore-Feal and Dalekovod Zagreb, were exclusively Croatians connected to the ruling HDZ party in Croatia and its wing in Bosnia, HDZ BiH, thus manifesting the clear ethnicization and politicization of the privatization process.


On top of that, in 2010, the privatization was declared unsuccessful. Today, 44 per cent of the company is still owned by the Federation entity, 44 per cent belongs to small shareholders and the government of Croatia owns the last 12 per cent.


The company is heavily indebted, and according to the current director, the key to restoration is yet another privatization. The company is supposed to be privatized by 2020; the new investor could be the electric utility company Elektroprivreda HZHB which is also its biggest creditor.


In recent years, speculation emerged that Russian investors pushed by the former Croatian member of Bosnian presidency Dragan Covic, might be interested in the privatization. These rumours faded after Covic was not reelected to the Bosnian state presidency in 2018.


Following primarily political logic and aims, Russian capital has played a major role in privatization in the Bosnia’s mainly Serbian entity, Republica Srpska, where the oil refineries in Modrica, Bosanski Brod and Banja Luka are the biggest Russian investments.


The refineries were sold for 121 million euros to a Russian company Nefgazinkor, which is 100 per cent owned by the Russian state company Zarubezhneft.


Under the privatization plan, the investor was supposed to pay the debts of all three refineries. However, this burden was then assumed by the RS government. The obligation of the new owner was also to invest in the development of the companies. However, the Russians merely provided loans to all three companies and further indebted them.


Nevertheless, Milorad Dodik, the former president of the Republica Srpska, called the privatization a “great help of Russian brothers to the Serbian nation”.


There is no doubt that the side aim of the Russian investment was to strengthen Russia’s ties to the ruling party in the RS, Dodik’s SNSD.


Whereas Russian investors play a significant role in the RS, the mainly Muslim and Croat Federation attracts Turkish capital among others. The biggest Turkish investment in Bosnia came in 2005 when the Turkish Holding Hayat privatized the paper and cellulose producer Natron in Maglaj. The firm employs about 900 workers and seems to be one of the rare good stories of privatization.


But a more detailed look at Turkish activity in Bosnia shows that Turkey aims to play a more active role in the country, especially through control of the banking sector. In 2018, Turkey became the second largest investor in this after Austria. Although Turkey declares its friendship with Bosnia, in particular with the main Bosniak party, the SDA, Turkey is not even among the ten largest foreign investors overall. As a regional power, therefore, Turkey has its interests in the Western Balkans, but political support for Bosnia prevails over its investments, so far. 


To sum up, the main driving force behind the privatization process in Bosnia was the international community, represented primarily by the USAID. Although privatization of the state-owned enterprises was supposed to be transparent and fast, the international community did not prevent political obstructions, clientelism and ethnicization.


The desire to attract foreign investment resulted in suspicious and clientelist businesses that strengthened the influence of foreign countries rather than boosted the Bosnian economy, although in some cases, like Natron Hayat, privatization was successful.


Foreign investment has, therefore, been both an opportunity and a threat to today’s Bosnia and Herzegovina. As the cases mentioned illustrate, political motives and struggle for influence in the country have often gone hand in hand with economic activity.

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